NEW YORK – Dec. 12, 2016 – A sustained period of rising rates could freeze homeowners who currently have a historically low mortgage rate – homeowners who might want to upgrade to a bigger or better house, but who make a financial decision to stay put in order to save money.

This type of housing situation, which economists call "rate lock," could weigh on housing demand in 2017, economists said. A seven-year run of historically low mortgage rates has encouraged home buying and helped increase prices sharply after the housing crash. The S&P CoreLogic Case-Shiller U.S. National Home Price Index, for example, reached a record in September.

But mortgage rates have jumped more than half a percentage point since the presidential election, and economists are bracing for higher rates in 2017.

Rising rates make mortgage payments more expensive, and that gives homeowners an incentive to remain in place rather than trade up, says Nela Richardson, chief economist at real-estate brokerage firm Redfin.

"It doesn't take much to turn off the faucet in this market because inventory is so low and prices have gone up so quickly," Richardson says.

The average rate for a 30-year fixed-rate mortgage rose to 4.13 percent last Thursday, according to mortgage company Freddie Mac, up from 3.54 percent before the election. That was the highest level since October 2014.

The latest bump boosts the monthly cost of owning the typical U.S. home by more than $70 a month, or about $26,000 over the life of a 30-year fixed-rate mortgage, according to Black Knight Financial Services.

Source: Wall Street Journal (12/12/16)

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